Summary: Although the US government shutdown has now ended, the weekly Commitments of Traders report remains unpublished by the CFTC. However, we can present the latest data on Brent crude and gas oil from the ICE Futures Europe Exchange.
The US government reopened on Friday following the longest shutdown in US history. During this time the Commodity Futures Trading Commission has not been unable to publish its weekly Commitments of Traders report. Reports covering US-traded commodities, IMM forex, bonds and stock index futures have not been issued by the CFTC since the week of December 18. We are yet to be advised when these reports will resume following the reopening. The ICE Futures Europe Exchange, however, continues as normal with Brent crude and gas oil shown below.
In the week to January 22 money managers increased bullish bets on Brent crude oil by 30,029 lots to 202,934 lots, a ten-week high. The increase was the biggest weekly addition in six months and since reaching a 3-year low on December 4 the net-long has now increased by 66,000 lots. However, once again we find that most of the increase from the low has been driven by short-covering (51k) while only 15k of new longs were added.
This highlights the continued hesitancy with regards to the prospect for further upside in crude oil. Not least considering the macroeconomic outlook which remains clouded with uncertainties from the US to Europe and China.
What is the Commitments of Traders report?
The Commitments of Traders (COT) report is issued by the US Commodity Futures Trading Commission (CFTC) every Friday at 15:30 EST with data from the week ending the previous Tuesday. The report breaks down the open interest across major futures markets from bonds, stock index, currencies and commodities. The ICE Futures Europe Exchange issues a similar report, also on Fridays, covering Brent crude oil and gas oil.
In commodities, the open interest is broken into the following categories: Producer/Merchant/Processor/User; Swap Dealers; Managed Money and other.
In financials the categories are Dealer/Intermediary; Asset Manager/Institutional; Managed Money and other.
Our focus is primarily on the behaviour of Managed Money traders such as commodity trading advisors (CTA), commodity pool operators (CPO), and unregistered funds.
They are likely to have tight stops and no underlying exposure that is being hedged. This makes them most reactive to changes in fundamental or technical price developments. It provides views about major trends but also helps to decipher when a reversal is looming.
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.
Equities: The AI fever pushes market to new extremes
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.
China faces challenges from generative AI amidst the fragmentation game
As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.
Japan’s riposte to aging and productivity headwinds: robots with generative AI
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.
Fixed income: To hike or not to hike, that is the question
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
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